The standard mileage rate for employers to reimburse employees for business use of a personal vehicle has been decreased from the 2009 mileage rate level.
For 2009 the standard mileage rate was 55 cents per mile.
For 2010 the standard mileage rate has been reduced to 50 cents per mile.
Monday, April 26, 2010
'Schedule C' business or 'Other Income'?
If you are one of the millions of Americans who receive a form 1099-MISC at year end, you may have trouble deciding how to characterize this income. If you are conducting a trade or business you would be required to file your business activity under Schedule C. If you are not, you would likely file this income on line 21, other income on your return. But this simple decision has very different tax effects, and may not be as easy as one might think.
The IRS has defined a trade or business as, “an activity carried on for a livelihood or in good faith to make profit.” Business activity can also be classified as one that is regular, frequent, and continuous. Businesses in this regard are not required to make a profit to maintain their status as a business, but must be furthering their business interests.
If you do not fall into that previous category then your income would most likely fall into the category of other income. Other income is not subject to self-employment tax, but the trade-off with this income type is that expenses are limited to the extent of the income you have received.
Please note that the fact that you have no intentions to continue the venture beyond one year’s time may not have any effect on whether or not you were conducting business activity during the time in which you earned income (one of the major misconceptions related with business activities).
Please also see the IRS small business/ self employed section for further information, or contact your tax adviser.
http://www.irs.gov/businesses/small/index.html
The IRS has defined a trade or business as, “an activity carried on for a livelihood or in good faith to make profit.” Business activity can also be classified as one that is regular, frequent, and continuous. Businesses in this regard are not required to make a profit to maintain their status as a business, but must be furthering their business interests.
If you do not fall into that previous category then your income would most likely fall into the category of other income. Other income is not subject to self-employment tax, but the trade-off with this income type is that expenses are limited to the extent of the income you have received.
Please note that the fact that you have no intentions to continue the venture beyond one year’s time may not have any effect on whether or not you were conducting business activity during the time in which you earned income (one of the major misconceptions related with business activities).
Please also see the IRS small business/ self employed section for further information, or contact your tax adviser.
http://www.irs.gov/businesses/small/index.html
Tuesday, October 13, 2009
Long Term Care Insurance
Recently the IRS released guidance on the deductibility of Long Term Care Insurance. Long Term Care Insurance, has been around for many years, but compared to other insurance products this type of policy is considered a new type of insurance. These plans are designed to cover the rising costs associated with caring for yourself or your family as you grow older. There are many providers for this insurance, with many different coverage types, I will avoid the discussion of whether a policy makes sense for ‘you’ but rather focus on the concerns of a business owner considering the use of this policy.
Self Employed individuals:
Self employed individuals can generally deduct any LTC premiums paid for themselves, their spouses or dependents. In order to deduct these amounts, business owners must have a employer sponsored plan and deductibility would be limited to details specified in the plan document. Therefore LLC’s, S-Corps, and sole proprietors can deduct premiums for coverage of qualified members, subject to specific limits. Members are not allowed to participate if this coverage is available through their spouse, or through any other employer the owner works for, in addition to his business. In addition, businesses must have earned income to off-set with this payment, otherwise the amounts are non-deductible. Lastly, the amounts may be limited according to IRS rate tables that limit the extent of deductions for these types of contracts based upon age of the recipient (eligible LTC premium amount).
Employer/Employee relationships:
When an employer has employees and offers the employee group LTC coverage as a benefit of employment according to a plan written by the corporation, there are many potential benefits. One of the major benefits is that LTC insurance premiums are fully deductible and are not limited to the same income and personal age limitations that self employed individuals have to deal with (not limited to eligible LTC premium amount). Also benefits received are not included in the employee’s income and the employee can receive the LTC benefits tax-free. In this case, if you were an owner of a C-Corp, whom was also an employee, in theory there is no major difference between you and your other employees. Therefore, as long as your plan covers the employee group without consideration of ownership status, the owner-employee would be eligible for LTC insurance benefits.
Although, I have tried to provide plain-English explanations to this topic, please do not misconstrue this to mean that these plans are simple. If you have LTC planning considerations, please do yourself a favor and find a good insurance provider, and CPA that can go through potential benefits, and avoid costly mistakes associated with Long Term Care Insurance.
If you would like additional information on this topic please consult:
Code Sections: IRC 7702B; IRC 213(d)(1); IRC 162(1); IRC 162(a); IRC 106(a)
Finn, Daniel R., ‘Long Term Care Insurance and Tax Planning’ Journal of Accountancy. PP 44-47. August 2008 Edition.
Self Employed individuals:
Self employed individuals can generally deduct any LTC premiums paid for themselves, their spouses or dependents. In order to deduct these amounts, business owners must have a employer sponsored plan and deductibility would be limited to details specified in the plan document. Therefore LLC’s, S-Corps, and sole proprietors can deduct premiums for coverage of qualified members, subject to specific limits. Members are not allowed to participate if this coverage is available through their spouse, or through any other employer the owner works for, in addition to his business. In addition, businesses must have earned income to off-set with this payment, otherwise the amounts are non-deductible. Lastly, the amounts may be limited according to IRS rate tables that limit the extent of deductions for these types of contracts based upon age of the recipient (eligible LTC premium amount).
Employer/Employee relationships:
When an employer has employees and offers the employee group LTC coverage as a benefit of employment according to a plan written by the corporation, there are many potential benefits. One of the major benefits is that LTC insurance premiums are fully deductible and are not limited to the same income and personal age limitations that self employed individuals have to deal with (not limited to eligible LTC premium amount). Also benefits received are not included in the employee’s income and the employee can receive the LTC benefits tax-free. In this case, if you were an owner of a C-Corp, whom was also an employee, in theory there is no major difference between you and your other employees. Therefore, as long as your plan covers the employee group without consideration of ownership status, the owner-employee would be eligible for LTC insurance benefits.
Although, I have tried to provide plain-English explanations to this topic, please do not misconstrue this to mean that these plans are simple. If you have LTC planning considerations, please do yourself a favor and find a good insurance provider, and CPA that can go through potential benefits, and avoid costly mistakes associated with Long Term Care Insurance.
If you would like additional information on this topic please consult:
Code Sections: IRC 7702B; IRC 213(d)(1); IRC 162(1); IRC 162(a); IRC 106(a)
Finn, Daniel R., ‘Long Term Care Insurance and Tax Planning’ Journal of Accountancy. PP 44-47. August 2008 Edition.
Tuesday, September 1, 2009
Social Security Max. 2009
For the tax year 2009, employers are instructed to abstain from withholding social security tax after an employee reaches $106,800 in social security wages. This limit would limit an employee to paying $6,621.60 in social security taxes in 2009.
For 2008 the social security limit was $102,000 in social security wages, or $6,324.00 in social security taxes withheld.
Note- There is no limit on Medicare wages for either 2008 or 2009.
For 2008 the social security limit was $102,000 in social security wages, or $6,324.00 in social security taxes withheld.
Note- There is no limit on Medicare wages for either 2008 or 2009.
Monday, August 24, 2009
Keys to making Cash flow happen
Many business owners face this dilemma, I am busy, but the cash isn’t making its way to my bank account. I know what you may be thinking, this should not be a problem, but it is a problem for more businesses than you would think. In fact, many accountants would do well by more aggressively trying to collect on their overdue accounts. So, as a small business owner where do you start?
The first logical step is to set forth a plan of action. Without a sound plan you probably will not know who you should be collecting from, what types of things that should be said, and what types of results are realistic for your business. To help you set up an action plan here are some helpful hints.
1. Ask for the money. If you have completed work or have signed contracts which have payments in arrears, you have to be willing to demand payment. That doesn’t make you rude, it is as much how you ask for payment as it is what you want them to do, if you don’t ask for payment, they might not realize they are behind on payments.
2. Hold work until payments are satisfied. If you are in a position where you offer ongoing services, or better yet you have not delivered the product simply withhold the work until you are paid.
3. Offer a flexible payment option. If you have a really good customer whom you don’t want to lose, but also whom you can’t collect payments from on a regular basis, suggest a payment plan that can work for both of you. That way you keep your best customer and you are happy with the result. Just make sure that your agreement is enough to cover continuing work so that amounts owed do not keep piling up.
4. Consider adding late fees or pre-payment agreements with certain customers. For your habitual offenders this is often the best option. They will not like that they are charged interest on the money and may pay up. One word of caution, it is best to talk with your customers before you make this change; it is never good to give your customers bad surprises.
5. Always the last resort, take the customer to collections or small claims court. You want to exhaust all other options before this one as you are likely to lose this customer after this step. Unfortunately, this is often the only way businesses can collect on amounts they are owed.
Once you have your plan of action formulated, follow through with your efforts. It is stressful for most people having to call and ask for payment, but more often than you would think people are willing to work with you to make things right.
The first logical step is to set forth a plan of action. Without a sound plan you probably will not know who you should be collecting from, what types of things that should be said, and what types of results are realistic for your business. To help you set up an action plan here are some helpful hints.
1. Ask for the money. If you have completed work or have signed contracts which have payments in arrears, you have to be willing to demand payment. That doesn’t make you rude, it is as much how you ask for payment as it is what you want them to do, if you don’t ask for payment, they might not realize they are behind on payments.
2. Hold work until payments are satisfied. If you are in a position where you offer ongoing services, or better yet you have not delivered the product simply withhold the work until you are paid.
3. Offer a flexible payment option. If you have a really good customer whom you don’t want to lose, but also whom you can’t collect payments from on a regular basis, suggest a payment plan that can work for both of you. That way you keep your best customer and you are happy with the result. Just make sure that your agreement is enough to cover continuing work so that amounts owed do not keep piling up.
4. Consider adding late fees or pre-payment agreements with certain customers. For your habitual offenders this is often the best option. They will not like that they are charged interest on the money and may pay up. One word of caution, it is best to talk with your customers before you make this change; it is never good to give your customers bad surprises.
5. Always the last resort, take the customer to collections or small claims court. You want to exhaust all other options before this one as you are likely to lose this customer after this step. Unfortunately, this is often the only way businesses can collect on amounts they are owed.
Once you have your plan of action formulated, follow through with your efforts. It is stressful for most people having to call and ask for payment, but more often than you would think people are willing to work with you to make things right.
Friday, July 24, 2009
Energy Tax Credits: trying to make sense of it all
These days it seems like everyone is trying to do some small things to save money and/or help the environment. Recent tax credits offered from the federal government and State of Michigan hope to encourage this behavior. But, with new and changing credits come increased layers of confusion. If you are as confused as the rest of us on what credits are available to you as part of this new initiative, there is a bit of good news. The Michigan Alternative & Renewable Energy Center at Grand Valley State University has recently compiled some useful guides that should help to take the pain out of these tax credits.
They have both quick reference guides for those of us that need to know what types of credits are available to individuals and businesses, and more detailed information for those of us that like to know all the details (See the link below).
Another source that may be helpful for individuals would be form 5695 from the IRS (link below) or this IRS release regarding business energy tax credits.
Michigan Alternative & Renewable Energy Center release
http://www.gvsu.edu/marec/index.cfm?id=16C67908-0454-6A92-FC86012AE1BDD508
IRS form 5695
http://www.irs.gov/pub/irs-pdf/f5695.pdf
IRS release regarding energy tax credits
http://www.irs.gov/newsroom/article/0,,id=209564,00.html
They have both quick reference guides for those of us that need to know what types of credits are available to individuals and businesses, and more detailed information for those of us that like to know all the details (See the link below).
Another source that may be helpful for individuals would be form 5695 from the IRS (link below) or this IRS release regarding business energy tax credits.
Michigan Alternative & Renewable Energy Center release
http://www.gvsu.edu/marec/index.cfm?id=16C67908-0454-6A92-FC86012AE1BDD508
IRS form 5695
http://www.irs.gov/pub/irs-pdf/f5695.pdf
IRS release regarding energy tax credits
http://www.irs.gov/newsroom/article/0,,id=209564,00.html
Friday, July 17, 2009
To extend my posting earlier this week
Earlier this week I posted a blog titled Economic Free Fall Part I. In connection with this posting I wanted to point out that new unemployment rates came out this week. There were no surprises in this report (unfortunately). Here is a link to an article on yahoo about the newly released unemployment rates in which Michigan earned the unenviable position of first (and highest unemployment in over 25 years).
http://finance.yahoo.com/news/Michigan-unemployment-tops-cnnm-3856805725.html?x=0&.v=3
http://finance.yahoo.com/news/Michigan-unemployment-tops-cnnm-3856805725.html?x=0&.v=3
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